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beaverjuice

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Banks here wooing cash-rich savers with higher deposit rates
« on: December 29, 2015, 10:26:18 pm »
http://business.asiaone.com/news/banks-here-wooing-cash-rich-savers-higher-deposit-rates

..... with FD rates on the rise, income and yield investors might wish to recalibrate their targets .... how much spread should you aim for?  4% above?
"A man who has depths in his shame meets his destiny and his delicate decisions upon paths which few ever reach."

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kyith

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Re: Banks here wooing cash-rich savers with higher deposit rates
« Reply #1 on: December 30, 2015, 12:36:11 pm »
What happens when interest rates rise is that not just the cost of borrowing for interest rate sensitive instruments like REITs and business trust become higher, but mainly that Wealth Assets such as fixed deposits and insurance endowments not to mention new singapore savings bonds and retail bonds also have a higher return per unit risk.

To compete,say the 4% spread beaverjuice talked about, these interest rate sensitive REITs and business trust would have to have a adequate return for the risk that you as the wealth builder takes on.

if you look at my Dividend Stock Tracker > http://www.investmentmoats.com/DividendScreener/DividendScreener.php

the lowest yielding ones are the retail  REITs particularly Capitamall Trust, one of the biggest reit in singapore and SPH REIT. They yield at 5.6% to 5.8% respectively.

comparing against fixed dep is abit funky but we usually compare against the 10 year SGS bond yield.

if you look at Fundsupermart's prevailing prices of traded singapore government bonds > https://secure.fundsupermart.com/main/sgs/SGShome.tpl

the yield to maturity for a 9.43 years bond is 2.35%.

add 4% to it, factoring the risk borne as a REITholder you should be expecting 6.35%.

Suffice to say for them to get that yield, the price of the REITs wil have to go DOWN so that the market dividend yield of the REITS can go UP to make it attractive.

the caveat here like beaverjuice say is: is 4% the right spread?

my answer is: if you are evaluating your portfolio and u value safety, you should always keep in mind this 4%. the market may afford a lower spread say 3%, but it is how much safety you would like to buy something to protection the value of your investment.

I can say the spread is 2% and then you buy Capitamall at 4.5%, but when the market THINKS they should trade at 3-4% spread, then you will have a capitamall that will lose capital values.

Also note that for various different reits, their assets are different, and the spread to risk free theoractically should be different
Engineer by Day, Ghost Wealth Mentor that shares his practical and philosophical experience in building & managing wealth, deconstructing financial independence and fin security. Blogs at www.investmentmoats.com

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beaverjuice

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Re: Banks here wooing cash-rich savers with higher deposit rates
« Reply #2 on: December 30, 2015, 12:46:31 pm »
@kyith - good and valid points !  ;)

other points to consider would be liquidity, WALE,  asset quality, interest cover, gearing ratio etc ....  that'll take a deeper dive into REITs.

a fund manager can take the guesswork out of selecting REITs on SGX of course but they'll cream 1% approx, not to mention initial sales charge.

I'm waiting for someone to start an S-REIT ETF ..... which may be anytime now that an index has been created

http://www.sgx.com/wps/wcm/connect/sgx_en/home/newsflash/mu_29122015_1
« Last Edit: December 30, 2015, 12:49:45 pm by beaverjuice »
"A man who has depths in his shame meets his destiny and his delicate decisions upon paths which few ever reach."

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kyith

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Re: Banks here wooing cash-rich savers with higher deposit rates
« Reply #3 on: January 02, 2016, 08:47:37 pm »
see? everyone with a sane mind can see a REIT ETF.

only the fund managers cannot see it. sheesh.

also one thing to note. while interest rate is important, the economic outlook is more important. rates rise typically because the environment is doing well and u need to cool it.

so good managers + good properties + good decisions u will see some trusts do well.

when that is not the case... you gonna see challenges.
Engineer by Day, Ghost Wealth Mentor that shares his practical and philosophical experience in building & managing wealth, deconstructing financial independence and fin security. Blogs at www.investmentmoats.com


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beaverjuice

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Re: Banks here wooing cash-rich savers with higher deposit rates
« Reply #4 on: January 02, 2016, 09:41:50 pm »
@kyith - yeah, let's hope so that 2016 could be the definitive year for a REIT ETF to blossom in singapore.  The stars are aligned for sure ...
"A man who has depths in his shame meets his destiny and his delicate decisions upon paths which few ever reach."

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